Credit managers’ outlook still gloomy but brightening – survey

Most credit portfolio managers believe credit defaults will rise in the coming months, although the level of pessimism is waning, according to the fourth-quarter survey from the International Association of Credit Portfolio Managers.

The majority of surveyed credit managers, 61%, forecast rising loan defaults over the next 12 months globally, although that is down from 73% of managers that responded with that answer in the third quarter.

By region, 74% see defaults rising in Europe (down from 81%), 63% in North America (down from 75%), 48% in Asia (down from 56%), and 31% in Australia (down from 65%).

The Aggregate Credit Default Outlook index for the next 12 months rose to -64.2 in the most recent survey, improving from -74.5 in the previous quarter. A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve.

Som-lok Leung, IACPM's executive director, said in a telephone interview that while the forecast remains negative, there's a growing sense the situation will improve with the roll out of the COVID-19 vaccines.

"There are more optimistic views that we are finally moving toward the end date of the global pandemic and the lockdown," Mr. Leung said.

The index rose slightly in every region, and Europe remains the region with the lowest index number at -58.1, up from -81.1 a quarter earlier. North America's index rose to -44.7 from -72.5. Asia rose to -42.9 from -55.6, and Australia rose to -31.3 from -65.

Fewer surveyed managers believe credit spreads will widen over the next three months in all regions and categories, compared with the previous quarter's survey.

Fifty-two percent believe spreads will widen on high-yield debt in Europe (down from 77% in the previous quarter's survey), while 50% believe spreads will widen on North American high-yield debt (down from 70%).

On the investment-grade side, 39% believe spreads will widen on European debt (down from 60%) and 34% on North American debt (down from 55%).

The survey is conducted among IACPM members, which consist of credit portfolio managers at more than 100 financial institutions in the U.S., Europe, Asia, Africa and Australia.